Short answer. All three. A simple substitution stated without specifying the cases covers the instituted heir dying before you, refusing to accept, and being incapacitated to inherit, unless you have provided otherwise. Naming a substitute without conditions is read as a fallback for whatever reason the first choice drops out.
What the law says
A simple substitution, without a statement of the cases to which it refers, shall comprise the three mentioned in the preceding paragraph, unless the testator has otherwise provided.
Civil Code, Article 859 — Simple Substitution. Read the full provision →
Silence is read broadly
Article 859 supplies a default for the common case where a testator names a backup heir but does not say when the backup takes: a simple substitution, without a statement of the cases to which it refers, shall comprise the three mentioned in the preceding paragraph, unless the testator has otherwise provided. So an unqualified substitution is not narrow. Rather than guess that you meant only one contingency, the law reads the substitution as covering the whole set. The substitute inherits whenever the first choice fails, for any of the recognised reasons, not merely one you might have had particularly in mind.
The three cases it comprises
The "three mentioned in the preceding paragraph" are the ways an institution can fail: the instituted heir predeceases the testator, so nothing vests in him; the heir survives but declines and renounces the inheritance; or the heir is incapacitated, legally disqualified from taking. A bare substitution catches all three. That breadth usually reflects what people actually want from a backup: someone to receive the share no matter why the primary heir is not there to take it, whether through death, unwillingness, or a legal bar.
How to narrow it deliberately
The default yields to a contrary provision, in the words "unless the testator has otherwise provided". If you want the substitute to inherit in only one situation, say the heir's death but not his renunciation, you must state that limitation in the will. Left unstated, the limitation does not exist and the full triple coverage applies. This is a trap for the careless drafter who assumes a substitute will step in only for the single event he was thinking of; the law assumes the opposite unless told.
Why the distinction can matter
Which cases a substitution covers decides who ends up with the property when the first heir falls away, and by what route. If the substitution reaches the event that actually occurs, the substitute takes; if you had deliberately confined it to a different event, the share might instead pass by other rules or by intestacy. So when you provide for a substitute, be deliberate about scope: accept the broad default if that is what you want, or write in the limitation clearly if it is not. A lawyer can make the intended reach unambiguous on the page.